Regulating digital payments

The public spat in the fintech world post the launch of WhatsApp’s payment feature has highlighted the difficulties in regulating the digital medium, especially when it comes to financial transactions. On the one hand, the new feature introduced by the Facebook-owned platform gives superior user experience, while on the other it has been accused of throwing caution to the wind by not adhering to the rules specified by the National Payments Corporation of India (NPCI) for platforms running on the Unified Payments Interface (UPI). For example, WhatsApp’s payment service does not require the user to login with an ID and password although this has been made mandatory for other payment platforms. While this makes WhatsApp more easy to use, there are concerns over possible security breach. The WhatsApp payment feature is not interoperable with other payment applications making it a private closed wall running on a public platform. This defeats the purpose of setting up the UPI as a system that powers multiple bank accounts into a single mobile application enabling seamless fund-routing under one hood.

Other mandated features such as enabling QR code and Aadhaar-linked payments are also missing from the WhatsApp platform. There is also no BHIM-UPI branding while other players in this segment have to comply. All this distorts the level playing field in a highly competitive market with players like Paytm and Google. The stakes are high as India’s digital payments industry is currently worth around $200 billion and is expected to grow five-fold to reach $1 trillion by 2023. A recent survey highlighted that ease of use emerged as one of the biggest factors for consumers picking one digital payments platform over the other. WhatsApp, with more than 200 million users on its messaging platform in India, has a clear advantage if it is allowed to offer features that makes its platform easier to use.

Although the NPCI has clarified that WhatsApp will have to comply with all rules once the trial phase is over, it is not clear why the American company was allowed to launch even the beta version without all the features mandated by rules. Trials are undertaken to test if all features of the service are working according to the prescribed standards. If WhatsApp’s beta version does not support an important aspect such as interoperability in the test phase, how can consumers be sure that the feature will work without any glitch when the company launches it commercially? NPCI and the Reserve Bank of India should make these rules clear and transparent so that no one player can get a better deal over the others. The digital payments space is in a nascent stage and therefore it is all the more important that the financial regulators ensure a level playing field for the industry and protection for the consumers.

COMMENT NOW